Investment Notes:
U.S. REITs down 37% in '08

Similar to the broader market, the U.S. REIT market was down in 2008 as all sectors of the economy were affected by the credit crisis and global economic struggles. This year, the REIT market will continue to face the same challenges as other industries: the need to revitalize the frozen credit markets enabling companies to refinance debt coming due, and weathering the uncertain and challenging economy, according to the National Association of Real Estate Investment Trusts (NAREIT).

The FTSE NAREIT All REIT Index was down 37.34 percent for 2008, following a near 16 percent rebound in December. The FTSE NAREIT Equity REIT Index was down 37.73 percent for the year after gaining 16.39 percent in December.

The broader market indexes also struggled in 2008. For the year, the NASDAQ Composite was down 40.54 percent, the Dow Jones Industrial was down 33.84 percent, the S&P 500 was down 37.00 percent, and the Russell 2000 was down 33.79 percent.

Broader market fundamentals had a strong impact on how insulated or how badly hit specific REIT sectors were in 2008. On the positive side, self storage REITs were up 5.05 percent in 2008. The relatively small sector is comprised of four companies that operate with very low leverage, a factor investors favored in the current credit climate. Healthcare REITs, down 11.98 percent for the year, fared better than most other sectors as investors sought the positive, long-term fundamentals of companies catering to the country’s aging population.

On the flip side, the slowdown in global manufacturing and decreased wholesale activity depressed the industrial REIT sector (down 67.47 percent for the year), while regional mall REITs (down 60.60 percent) were affected by investors responding to the fear of a consumer spending shutdown and increasing retail store closings. Lodging/resort REITs (down 59.67 percent) faced the challenge of both vacationers and business customers curtailing travel plans due to the economy.

In spite of the fact that some REITs cut dividends in the second half of the year, both the All REIT and Equity REIT indexes posted their highest year-end dividend yields in nearly a decade. The FTSE NAREIT All REIT Index dividend yield was 8.37 percent as of Dec. 31, 2008 (the highest since its 8.98 percent level of December 1999). The FTSE NAREIT Equity REIT Index dividend yield was 7.56 percent at the end of 2008 (the highest since its 8.70 percent level of December 1999).

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